Stock Basics – Value Investing
In simple terms
Value investing is when you buy stocks at a reasonable low cost compared to the stocks true value (known as intrinsic value). Value investors tend to think long term. No additional time and energy is usually required as the stocks will grow over time.
This particular concept was introduced by Benjamin Graham who is known as the father of value investing (He was a British-born American investor, economist, and professor). Benjamin stated that it involves actively searching stocks of companies that are believed to be undervalued.
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The reason why value investors get discounted stocks, is usually because when the market share prices fall it produces an emotional reaction where shareholders feel that the stocks will not perform well. As a result, value investors take this opportunity to then buy stocks as shareholders tend to sell their stocks. In other words, they take advantage of emotional investors (who invest on how they feel). Value investors take advantage of this because they know that businesses and markets will eventually recover and perform well over a long period of time. This tends to be a risky decision to make because not all businesses downfalls can be reversed.
The income from the investments may go up or down which means that there is still no guarantee of return on investments.
Warren Buffett is one of the most successful investors of all time. He runs Berkshire Hathaway, which owns more than 60 companies and his net worth is $87.1 billion.
In the words of Warren “Price is what you pay. Value is what you get.”